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The Q2 earnings season is approaching its tail end, with 76.2% of the S&P 500 members having released their quarterly numbers as of Aug 2. Reported earnings for these 381 index members increased 25% year over year on 10.4% higher revenues. Among them, 80.1% delivered positive earnings surprises while 73.8% surpassed top-line expectations.

For the remaining 119 companies combined with the already reported 381 index members, earnings are estimated to improve 23.9% on 9.3% higher revenues in Q2, with double-digit bottom-line growth expected for 14 of the 16 Zacks sectors. These projections indicate that Q2 earnings growth is most likely to exceed the Q1 level as the remainder of this earnings season unfolds.

Given this in the backdrop, let us focus on the Zacks Utilities sector, which is characterized by its defensive nature and domestic orientation. Total Q2 earnings for stocks in this space are anticipated to increase 11.2% year over year on revenue growth of 1% as of Aug 2. For more details on quarterly releases, you can go through the latest Earnings Preview.

Notably, utility stocks’ bottom line in Q2 is expected to benefit from the new rates in their service territories, customer growth and effective management of expenses.

Unemployment rate in the United States during the current reporting cycle was in the 3.8-4.0% range. This historic low level of unemployment drove demand for new housing units and in turn the requirement for utility services. Per a U.S. Energy Information Administration ("EIA") report, electricity demand from residential, commercial and industrial sectors during the first half of 2018 improved from the year-ago period.

However, these utilities do have their share of challenges such as a rising debt level, stringent regulations and the hurricane season, which can wreak havoc on infrastructure. Rising interest rates (the Federal Reserve hiked interest rates in June, marking the seventh increase since December 2015) make bonds a strong investment option compared with utility investment. Despite the rate hikes, we find some of the utilities fundamentally strong enough to come up with positive earnings surprise this season.

With 49 index members set to release their financial numbers by end of this week, let us take a sneak peek at the two utility stocks that are scheduled to release Q2 results on Aug 7.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The AES Corporation (AES - Free Report) came up with a positive earnings surprise of 12% in the last reported quarter. The company also outperformed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 12.05%.

In April 2018, AES Corp’s 671 MW combined-cycle gas turbine natural gas plant started commercial operations. Such projects are likely to boost the company’s bottom line in the current reporting cycle.

PPL Corporation (PPL - Free Report) pulled off a positive earnings surprise of 12.12% in the last reported quarter. Moreover, the company surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 9.09%.

We expect the second-quarter results to reflect strong demand at its domestic and U.K. regulated segments. The company is also expected to have benefited from higher transmission and distribution margins, new rates as well as favorable weather, which have possibly driven second-quarter sales volume.

According to our proven model PPL Corp is likely to beat earnings estimates this quarter. This is because it has an Earnings ESP of +1.43% and a Zacks Rank #3, which is a favorable combination indicating a likely positive earnings surprise (read more: Is a Beat in Store for PPL Corp This Earnings Season?).

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